Written by // Gregory Unruh & Fernanda Arreola, The Lincoln Center for Ethics — Thunderbird School of Global Management
Argentina is a country of diverse European heritage merged with South American roots, creating a unique cultural mix with evident national pride. The nation has struggled through many tumultuous changes, at times rapidly advancing economically and at other times experiencing economic crisis and backsliding. The country today is leveraging its natural and societal resources to regain global stature and, through adversity, exhibiting the obvious pride that characterizes the Argentinean character. As an emerging market, however, Argentina has to again show that it can overcome the current global financial downturn and continue its economic progress.
Since its independence from Spain in the early 19th century, Argentina has relied on a vast agricultural sector, a rich petrochemical industry and a growing tourism industry for economic growth.
From the time of President Perón, the country has faced cycles of prosperity followed by economic disruption, with downturns accompanied by political shifts. For example, economic growth in the 1990’s under the government of Carlos Menem hailed Argentina as the first “developed” nation in Latin America, only to tragically be followed by the country’s worst financial crisis. After a period of growth, today President Christina Fernandez de Kirchner is again confronting economic challenges brought on by the worldwide financial crisis.
However, with signs of recovery there is renewed interest among investors in Argentina. Due to policy reforms and international agreements, foreign investors enjoy the same rights as locals when investing in productive or financial assets. The country is party to several Free Trade Agreements with European and Asian countries, as well as the Mercosur treaty which was signed in 1995 by Argentina, Brazil, Uruguay and Paraguay as a common market agreement and is often seen as the starting point for a wider Latin American trading area.
Still, political risk concerns are an important consideration. According to the World Bank’s Doing Business Report, Argentina ranks 118 out of 183 countries in terms of “ease of doing business,” largely due to concerns about bureaucracy. The report notes the difficulty of starting a business, obtaining construction permits, paying taxes and registering property as key issues. Foreign investors have also voiced disquiet about current President Christina Fernández’s recent decisions concerning soccer television transmission rights, influence in the telecommunications industry and policy positions that could facilitate and increase money laundering.
Five Compliance and Ethics Issues to Consider //
CORRUPTION
Ranking 106th out of 180 countries in the 2009 Transparency International Corruption Perceptions Index, corruption in Argentina is generally perceived as widespread, affecting not only public but private organizations. Allegations reach the highest levels, with current President Fernandez and her husband, former President Kirchner, accused in 2007 of inappropriate allocation of funds.
Deal with it
Dealing with corruption in Argentina is not just an important business issue, it is also a larger social challenge for the entire country. The national Anti-Corruption Agency has labored to improve the judicial process and involve the general public in anti-corruption efforts. This agency has improved the agility of the investigation system and the efficacy of prosecution and is a place business people can turn to for assistance. In addition to the agency, several non-profit organizations have established regular programs that can assist in anti-corruption efforts.
TAX EVASION
It can be common to find that taxation of services is irregular. In the informal business sector, you may be asked at the time of payment if you want VAT tax added to your invoice or not. In Buenos Aires province alone, authorities estimate this practice leads to a loss of over $1 billion in tax revenues each year.
Deal with it
Dealing with this problem is a key priority in the country given Argentina’s troubling fiscal situation. Argentinean tax authorities have therefore been working creatively to find new ways of confronting this behavior as well as fostering cultural change. In 2006, for example, authorities confiscated TVs owned by tax evaders right before the World Cup quarterfinals match between Argentina and Germany. If you suspect tax evasion is occurring in your business affairs you should report it to Argentina’s tax authority.
UNIONS
Unionized workers can be an important force in Argentine business. The U.S. multinational Kraft Foods, Inc., for example, found their Argentinean plants blocked by protestors after announcing a series of layoffs to cope with declining sales in the region. Kraft has struggled to defend its legal right to justifiably fire workers, which has undermined the reputation of Argentina´s legal system with some business people. Some foresee more disputes in the future as companies react to the economic downturn.
Deal with it
Companies considering major layoffs should consult with government authorities. The government has signaled it is aware of the damage that these situations create for industrial relations. Also, avoiding practices such as temporary hiring or abusing the Employment Contract Law’s 3 month trial period will strengthen a company’s relations with employees. Over time, the current social unrest should ameliorate as the financial crisis recedes.
FINANCIAL SYSTEM
Argentina’s banking system remains state dominated with the largest bank in the country, Banco de la Nación Argentina, a state-owned institution. Although the system has mostly recovered since the 2001 debt default, there is still investor concern about the reliability of established regulations.
Deal with it
With memories of the Argentina’s US$95 billion debt default debacle eight years ago, public and private institutions are scrutinizing the Argentine banking system closely. Argentina is trying to renegotiate outstanding debt and the government has worked to improve the financial system in an effort to regain access to capital markets. The increased presence of foreign banks is also helping to strengthen loan and banking standards. The financial sector expanded by over 20 percent in 2006 and offered signs of improvement, with mortgages and personal loans rising, and non-performing loans declining.
COOKING THE BOOKS?
In 2007, the Argentine government was accused of manipulating economic indicators. It has been suggested that then president Néstor Kirchner interfered to make the inflation rate appear lower than it actually was. In response, the employees of the national statistics institute (INDEC) went on strike, claiming their work and independence had been discredited by government intervention.
Deal with it
Although it is thought that INDEC is the national reference for most indicators, Argentines are generally aware of inconsistencies with regards to public information. Many therefore turn to other sources of data, such as consulting agencies, universities and private organizations. For companies interested in investing in Argentina, it is prudent to be skeptical of statistics and seek multiple sources for confirmation of decision making data.
Five Etiquette Tips You Should Know Before You Go //
GREETINGS
In Argentina, relationships are extremely important and represent the nexus of social and business life. Initial introductions tend to be informal with a simple greeting followed by a handshake. If people are acquainted, they might kiss on the check as well. If someone is introduced with a title, such as “Mr.” or professional titles like “professor” or “doctor,” it is best to use that title when referring to the person in subsequent conversations or meetings. Importantly, Argentineans appreciate using Spanish as the language of conversation. Even when business partners are fluent in English, they tend not to switch from Spanish in most business environments.
BUSINESS MANAGEMENT
Business meetings usually take place at the office. Although you should always show up on time, you may find that your counterparts are delayed. First impressions in terms of professional appearance are very important and dressing well in any venue will be an excellent way to begin a business relationship.
Business people should expect long lasting meetings or several encounters before reaching an agreement. Argentine business people are frequently very thorough and often like to discuss every point in detail prior to closing business deals. Keep this in mind if you feel that your negotiation is moving slowly or that there is growing friction as your impression might be a response to a normal, meticulous negotiating style.
BUSINESS CARDS
Business cards are exchanged during introductions and presented with no special formality. If you are planning to do business continuously in the country, you should print your business cards in both English and Spanish with up-to-date contact and international dialing information.
GIFT GIVING
Gift giving is not common in Argentinean business meetings or gatherings. If you have established a relationship or you have been invited to celebrate a special event you can show your appreciation by bringing simple gifts such as flowers, candy, pastries or imported liquor. Avoid personal items such as clothing and imported leather or knives. You should also avoid extravagant or expensive items as they can be perceived as a bribe.
DINNER AND SOCIAL EVENTS
Dinners and social events, unless specifically for business, are for socializing and relaxing. As a guest, you should avoid ordering imported liquor as the taxes are high and you may be seen as abusing the host’s hospitality. Mannerisms such as using toothpicks, blowing your nose, or clearing your throat at the table are not acceptable. Also, pouring the wine at the table is often ritualistic and as a foreigner you will likely fail to do it properly. When conversing, it is wise to avoid topics like the differences between Brazil and Argentina, the Falkland Islands (Malvinas), soccer player Maradona’s personal problems and former President Peron as these can arouse emotional responses. If you are hosting dinner it is important that you insist on paying and arrange payment prior to the event. Argentines are proud of their national produce and meat so it is a good idea to order some for your event and compliment the quality. Plan to bring cash since most credit card points of sale do not allow you to include tips. Tipping etiquette suggests bringing enough currency to leave around 10-15 percent, depending on the service.
During your visit to Argentina it is likely that you will attend a live tango show. Be aware that most shows are not considered a tourist attraction and are frequented by locals and aficionados. Tango is considered an elegant and refined dance and you should demonstrate respect and interest by avoiding unnecessary talking and dressing elegantly for the event. When dancing you should move to the middle of the room as the outer lanes are for faster, more experienced dancers. Be sure and leave the dance floor if you are not dancing.
